So where do we stand on the only legislative fight that will matter this year, the battle to define the federal budget going forward? There are a lot of dimensions to it.

Eric Cantor has described a “three bites of the apple” approach. First, there’s the continuing resolution for the rest of the fiscal year; the current CR expires March 4. Then, there’s the Fiscal Year 2012 budget, which needs to be in place by then end of September. Finally, there’s the raising of the debt limit, which will have to happen between March and May.

Cantor wants to hold the first vote, on the CR, the week of February 14. He and the Republican leadership are dug in on a pro-rated cutback of the 2011 non-security discretionary budget to 2008 levels, which would be about $60 billion in cuts. Other Republicans want a much wider range of cuts, totaling around $100 billion. The President in the State of the Union called for a budget freeze on non-security discretionary spending to cover the next five years. Harry Reid said he could live with that today but he wants defense included in that calculation as well.

In the near term, then, the two sides are not actually fighting over much, though $60-$100 billion would crush the stimulus to the economy and cut around 1 million jobs, according to Senate Democrats. The US economy created a grand total of 1.1 million jobs last year.

Over the long term, there is a movement afoot, as we know, to institute $4 trillion in cuts over ten years, along the lines of the Bowles-Simpson cat food commission report. Mark Warner and Saxby Chambliss have led that effort, but some new players have joined that mix.

As the two sides bickered in dueling news conferences, a small band of senators from both parties was trying to heed Obama’s call, with talks aimed at advancing a bipartisan blueprint for deficit reduction developed last month by Obama’s fiscal commission. That blueprint goes far beyond cuts in domestic programs to tackle the biggest and fastest-growing parts of the federal budget, including cherished tax breaks such as the home mortgage interest deduction and popular entitlement programs such as Social Security and Medicare.

The effort includes four senators who sat on the deficit commission and rank as some of the most influential voices in their parties on budget matters, including Sens. Tom Coburn (R-Okla.); Mike Crapo (R-Idaho); Kent Conrad (D-N.D.), chairman of the Senate Budget Committee; and Richard J. Durbin (D-Ill.).

Conrad said discussions are focused on two tracks: a move to present the commission’s recommendations as a fully drafted bill for a Senate vote and an alternative path that could incorporate the panel’s ideas into the annual budget process or into legislation needed to raise the legal limit on government borrowing.

Along a separate track, House and Senate Republicans are trying to push legislation that would put creditors at the front of the line should the US not raise the debt limit. This is an insidious proposal that would, as Democrats said yesterday, “pay China first” while defaulting on Social Security checks or government employee salaries. As Doug Elmendorf, head of the CBO, said, this would still be a default, and the bond markets would see it as such, I presume. Republicans think they’ve found a nut with this proposal, and will use it to “prove” that they aren’t fomenting a crisis and hijacking the full faith and credit of the US government for massive spending cuts. In fact, they’re calling it “The Full Faith and Credit Act.”

Meanwhile, Republicans let their slip show with a bill to voucherize Medicare:

House Republicans are considering a measure to privatize Medicare that would be included in their alternative to President Obama’s annual budget.

House Republican Conference Chairman Jeb Hensarling of Texas said on Wednesday that he expects Republicans to support a provision to convert Medicare into a voucher system, which would effectively turn the government-backed health care program over to private insurers. Hensarling is the second-ranked Republican on the Budget Committee.

President Obama’s budget proposal will be delivered to Congress next month.

“Unless you deal with Medicare, unless you go into Medicaid, unless you deal with Social Security for future generations—programs that were a great comfort to my grandparents and parents are morphing into a cruel Ponzi scheme for my 8-year-old daughter and my 7-year-old son,” Hensarling said during a panel discussion sponsored by National Journal and The Atlantic.

It’s nice that they’d come out of the shadows on this, unlike Paul Ryan, who basically wrote this idea, then studiously avoided it in his SOTU response. Ryan’s plan would cancel the government-run Medicare program and give a voucher to seniors to purchase their own health insurance, and then not increase the value of the voucher over time, to encourage seniors to be “smart shoppers.” It’s actually a way for them to be unable to afford decent care and forego treatment. I’d predict a dramatic drop in the average lifespan if this came to pass.

At the first meeting of the Senate’s new Social Security caucus, Chuck Schumer warned of a “serious movement to undo the most successful government program in the 20th century.”

There’s more evidence that fiscal austerity should never be a government policy objective. The UK has just released its 4th quarter GDP numbers and the results are predictably grim: a -0.5% decline in GDP for the last three months of 2010, versus a market expectation of +0.4%.

This comes as no shock to anybody who understands basic sectoral flows. Taking income out of the private sector in the absence of any countervailing flows from the government or external sector means lower output, slower growth and higher unemployment. The UK economy’s performance is totally consistent with this analysis.

The road that Republicans – and many Democrats – want to lead this nation down is, simply, a road to ruin.